For years, Apple customers would complain about the “Apple Tax” – the premium over similar products from other companies that you would have to pay for Apple’s design and software.
It was an earned reputation. Apple stuff is premium, and increasingly, it’s sold as a luxury product as well – think of the $20,000 gold Apple Watch.
But Apple’s announcement on Tuesday, in which it revealed a new low-cost iPad and upgraded the least-expensive iPhone, shows that Apple has started to compete on price as well. The tech industry should take note.
If Apple starts using its massive cash pile to undercut its competitors and deflate entire product categories, that’s a big deal.
On Tuesday, Apple dropped the price of a fine, fast, and big iPad to $330 – a price below similar devices from Samsung, Lenovo, and Microsoft. Apple already dominated the high-end tablet market, and just undercut many of its Android competitors.
Apple’s iPhone SE got an upgrade, bumping its default storage up from 16GB to 32GB. It’s not a full refresh, but it shows that Apple is still giving love and attention to even its cheapest iPhone.
The low prices for these two updated device follow a trend that independent Apple analyst Neil Cybart noted last week: Apple “is making its products more accessible through lower pricing.”
His examples include AirPods at $159, which are priced lower than nearly any other wireless earbud. He also argues that Apple Watch is underpriced – at $269, it’s cheaper than Android options from Samsung and Fossil.
In his excellent analysis, he offers several theories about this change in Apple’s strategy. Accessories like AirPods or the Apple Watch could be loss leaders to get more people to buy iPhones, for example. Or Apple could just be getting better at making millions of units of any given product.
But my favorite theory for why Apple is pushing downmarket so hard is because CEO Tim Cook wants to push upmarket too. From Cybart:
Consumer Segmentation.Management is using product pricing to grow Apple’s user base. On one end, management cuts entry-level pricing in an effort to make products more accessible. However, management then pushes at the other end of the pricing spectrum with premium SKUs targeting a different part of the user base. The higher-priced SKUs help boost Apple’s overall margin profile.
The current rumor is that the redesigned iPhone expected to launch in September could cost more – like $1,000 or more. Part of that is because the parts that will go into it – an advanced 3D sensor, a camera with two lenses, an OLED screen – cost more than their predecessors.
But I suspect another part of it is that Apple is simultaneously transforming into a luxury brand. It already is in some places, like China, where owning an iPhone is a bit of a status symbol.
You can also see Apple’s luxury ambitions and its desire to stretch its top-end prices when it launched the Apple Watch with a tier that costs $1,000 or more. Apple’s head of retail used to work for Burberry, and recent Apple Watch marketing looks a lot like “emotional product” marketing – more like Gucci and Louis Vuitton than Dell.
It’s tricky, if you’re Apple, to continue to grow. Apple is already the most valuable public company in the world.
Apple needs to sell its products to as many people as possible worldwide, in places like India, and that requires a more affordable starting point in order to continue growing.
But a company valued as richly as Apple also needs to keep its margins high, and that’s why it’s also turning into a luxury brand at the same time – note that Apple’s iPad Pro debuted at $600, higher than the iPad Air 2 it nominally replaced.
As Cybart points out, it’s a game that few other tech companies can play – perhaps Microsoft, with its Surface lineup. But it also has risks for Apple, if it becomes seen as a mere fashion company, or current devices remain “good enough” to convince people not to upgrade.
Apple’s trying to be all things to all people, and while that means cheap iPads for consumers, it is a big change to Apple’s overall strategy.